The City must learn from Amsterdam and break free from the EU - by Catherine McBride 15.02.21

This article for Briefings for Britain begins with these forthright rejections of the EU claims that they have any power to undermine the City of London:


The EU’s attitude to the City of London makes a mockery of EU claims about level playing fields and seems to breach WTO Most Favoured Nation rules. Amsterdam’s gain of business – though fairly minor – is a sign of the times, and a signal to look further afield. If the EU is set on hostility, we should drop its constraints and unleash innovation.


There was probably some celebrating in Amsterdam this week as it was announced that ‘Amsterdam ousts London as Europe’s top share trading hub’ during January 2021. The subheading claimed that the UK’s departure from the EU prompted the shift in dealing locations. However, it was an EU regulation that EU shares traded in euros must be traded on an EU exchange or in countries granted “equivalence” by the European Commission, coupled with the fact that the EU has not granted the UK equivalence, which caused the move – rather than any inherent Dutch competitive advantage.


While many outside the financial services industry may assume that regulatory equivalence means ‘the same in substance or quantity’, it is now becoming obvious that for Brussels ‘equivalence’ is simply a matter of political expediency; for the UK presently has not only equal, but identical, financial regulations to the European Union. The Commission claims that equivalence has been withheld because the UK could change its regulations in the future. However, the Commission could withdraw equivalence with only 30 days’ notice, so this is hardly a rational excuse. In reality, the Commission has refused to grant trading platforms located in the UK equivalence to trade Euro denominated EU shares with the aim of forcing business to relocate from London. This makes a mockery of EU claims about level playing fields and seems to breach WTO Most Favoured Nation rules.


However we mustn’t forget that the three trading platforms in Amsterdam where these equities were traded are: Turquoise, majority owned by the London Stock Exchange Group in partnership with 12 investment banks; CBOE Europe, owned by CBOE Global Markets (CBOE stands for Chicago Board Options Exchange); and Euronext, a third of which is owned by a group of eleven European financial service companies, predominantly French and Belgian banks. So these trading platforms may be sited in Amsterdam in order to comply with EU regulations, but they are not exactly Dutch.


The same is true for the reported drop in Euro-denominated swaps trading in London which fell from almost 40% of the market last July to 10% last month, while trading on US platforms doubled to 20%. At the end of the article it mentions that the move in swaps trading was mainly due to changing behaviour among interdealer brokers, such as TP ICAP and Tradition. What they didn’t mention is that TP ICAP is headquartered in London and that Tradition is listed in Switzerland. Trading platforms, interdealer brokerages and investment banks are all multinational companies and can easily shift their transactions across borders as required.


For the full article in pdf, please click on this link:

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In addtion to the above article there is a further article on this subject by Professor Sarah Hall, senior fellow, and Dr John-Paul Salter, researcher, both UK in a Changing Europe, and Dr Martin Heneghan, research fellow, University of Nottingham, working on the UK in a Changing Europe project examining Brexit and financial services.


Financial regulation is key to understanding the future of the City


Here are some extracts from the article:


It is clear that some EU-focused business will relocate from the City to different centres within the EU. However, there is a strong likelihood that these departing firms will be replaced, to some extent at least, by new activity with the US and Asia – meaning that London will likely remain Europe’s dominant financial centre for some time.


The Bank of England and the Treasury have thus been cautious about the regulatory ties that equivalence decisions would bring: in his inaugural Mansion House speech, Andrew Bailey reiterated his suggestion that the UK would not necessarily seek to follow EU financial regulation for the sake of gaining equivalence decisions that may not actually be that beneficial.


Here, both Bailey’s speech and the Treasury’s guidance document on the UK’s framework for equivalence emphasise a desire to focus on the global level, and Bailey is clear that the focus should be on maintaining and developing high international regulatory standards.

This is significant since the broad outlines of financial regulation are actually defined in various global arenas – the Basel Committee, the Financial Stability Board, and so on.


This suggests that rather than a regulatory revolution, evolution in both the UK and the EU may lead to a gradual decline in UK-EU financial services trade. The important issue that will shape the extent to which this impacts London as an international financial centre is its relations outside of Europe, particularly with the US.


Tracing regulatory changes within and between the UK, EU and US will therefore be critically important in understanding what Brexit means for the City and financial services.


For the full article in pdf, please click on this link:

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